Every SaaS company’s main objective is to drive business growth. Acquisition efforts play a huge role in that regard, helping build a foundation of interested and paying users. But padding your customer base isn’t everything.
SaaS owners also need to nurture their existing customer base to ensure they stay with them for the long haul. If these existing customers leave, the company’s revenue potential can be reduced, harming its bottom line.
The term for the rate at which customers sever their relationship with a company is "customer attrition" or "churn."
This metric is one that SaaS owners should closely scrutinize if they want to grow their business sustainably. Even a small 2% difference in attrition rates between two companies can result in one company having twice as many customers by the following year.
If you want to prevent customer attrition and grow your company sustainably, read on. This article will give you a comprehensive understanding of customer attrition rates, how to calculate them, their causes, and ways to reduce them.
What is Customer Attrition?
Customer attrition, often called customer churn, is a metric that measures the rate at which customers stop doing business with your company. It is the direct opposite of customer retention rate, which is the percentage of customers who stay with you.
Customers can end their business relationships in different ways. The most common way users choose to sever your relationship is by unsubscribing from your product offering. This can be done actively or passively.
- Active attrition: Refers to when a customer makes a conscious decision to cancel their subscription. For example, when they end their subscription to a media streaming service.
- Passive attrition: Refers to when a customer stops transacting with a business unintentionally. For example, they may not renew expired payment methods and gradually disengage with your company altogether.
In either case, both affect customer attrition.
All subscription-based businesses face a small amount of customer attrition per month. This is because customers tend to move on and seek other solutions for their needs. This is a sign of normal and a healthy market.
However, when attrition rates are consistently high, this can signal underlying problems and unmet customer needs in your current business operations. It may also present opportunities for reevaluation of your SaaS business’s core retention strategy.
Tracking customer attrition can provide data that can hint at your business’s overall direction. If the rates are unfavorable, it can be a telltale sign that your business needs to act quickly to improve customer engagement with your customer base, among other things.
Your company’s customer attrition trends can help predict the business’s future trajectory and profitability. But, you may wonder, what are the standards of a good attrition rate, and how can you calculate your own?
Let’s look into customer attrition in more detail.
Calculating Customer Attrition
Knowing your customer attrition rate allows you to see how many customers your business loses over a specified period. This period can be a month, a year, or two weeks.
Calculating this metric is a straightforward process.
Before you begin, you should first identify two variables:
- The number of lost customers during the period
- The total number of customers during the period
Once you have the figure for those aforementioned variables, then you simply have to divide the number of lost customers by the total number of customers during that period. The resulting value will equate to your customer attrition rate.
In short…
Customer Attrition Rate = (Number of Customers Lost / Total Subscribed Customers) x 100
For example, if you have 800 customers and lose 40 in a month, your monthly attrition rate is (40 / 800) x 100 = 5%.
Monitoring this metric can give you an idea of how many of your current customers are moving away from your business. This data can give you an idea of the urgency with which your business should respond to customer churn.
What is a Good Attrition Rate?
There’s no one-size-fits-all attrition rate benchmark a business should strive to get. It’s a variable figure that is highly dependent on your industry, business model, and your own set of KPIs.
But if you want to benchmark against other SaaS companies, an annual attrition rate of no more than 7% is generally considered healthy, or a monthly attrition rate of a little over 0.6%.
This assumes that you’re also actively working to acquire new customers and business leads as well.
If your attrition rate is below that percentage, it’s a good sign that you’re doing fairly well in terms of meeting customer expectations. However, even if your attrition rate is above that amount, it doesn’t mean that you have a bad product or service.
Certain industries like technology, SaaS, and IT may have a higher-than-average attrition rate due to stifling competition. In such cases, benchmark your attrition rate against actual industry standards to get a good idea of how your business fares comparatively.
That said, once you’ve identified your attrition rate is higher than the industry average, it may be time to re-evaluate your customer retention strategies and switch things up internally.
Main Causes Of Customer Attrition in SaaS
Building a SaaS product is hard work, and gathering a steady list of loyal users is even more so.
Ask any other SaaS entrepreneur, and they’ll agree that knowing how to retain your users is an essential customer engagement strategy.
Here are some common causes of customer attrition in the SaaS world:
- Poor Onboarding Experience: If a user finds it difficult to navigate your SaaS product, they may choose to refund it and look elsewhere for their software needs.
- Wrong Target Market: If your marketing and sales engagement efforts have targeted people who aren’t the right fit for the product, they may just unsubscribe in the short term.
- Unjustified Price Tag: If your asking price is higher than your customer’s perceived value of your product, they could unsubscribe.
- Inadequate Customer Support: A lack of adequate training for your customer support staff, or a lack of customer support agents in general, can be a turn-off for your customers.
- Poor Product Performance: If your product doesn’t meet customers' expectations, they may unsubscribe and move on to other products.
- Better Competitor Offerings: A good sales funnel draws customers in, but if your competitors edge out in price or product value, your user base may choose to make the switch.
- Lack of Improvements and Updates: If your team fails to bring new quality-of-life updates to your product, it can fall behind competitors and cause your user base to switch to something else.
How To Reduce Customer Attrition
Here are four actionable tips to keep your customer attrition rate low and revenue at peak levels.
Build a Customer Community
You can make a community board like a Facebook group where customers can share experiences, ask questions, and provide feedback about your product. You should be active in this group as well, or hire a community manager to help engage the community. This fosters a sense of belonging and loyalty, reducing the likelihood of churn.
Improve Product Experience
Your product is the centerpiece of your business. Work towards continuously enhancing its functionality, usability, and performance to meet customer needs and expectations. Improve on all surrounding facets of the product as well, like the onboarding experience and future developments.
Gather Customer Feedback
Once a customer unsubscribes, let them fill out an exit survey. This survey should ask about their motivation behind the departure. Identify the most common answers in the exit surveys and work towards improving those processes. This can help you target areas that cause the most churn, which can help you pacify it.
Send Win-Back Emails
If customers do end up unsubscribing, don't give up on them. Send win-back emails to re-engage lost customers and entice them to return.
Instantly.ai helps you track your win-back emails by integrating CRM and automation features, allowing you to manage your follow-up sequence in one platform.
The best part is that, with this tool, you can automate and personalize this process to your liking. For example, let’s say you want to personalize each email. This software accomplishes this by scanning a file’s personalization column and utilizing the variables within it to uniquely tailor your emails or messages for each recipient, all through automation. Moreover, Instantly.ai’s scheduling features allow you to blast emails at predetermined times and frequencies.
Key Takeaways
A poor product offering, an unjustifiable price, or stiff competition, among other factors, can cause customer attrition. Leaving these issues unaddressed can cause your business to churn customers fast, which can exponentially reduce your revenue ceiling.
If you want your SaaS company to prosper or meet sales targets, you have to keep customer attrition lower than 7% a year or 0.6% a month. If you’re struggling to keep low attrition rates, don’t worry. There are ways to pump the brakes on churn.
One great way is to utilize all the retention tools in your arsenal. Instantly.ai is one such tool, allowing you to automate win-back emails to unsubscribed customers and potentially get them back on your side.
Ready to grow your customer base like you’ve never done before? Sign up for Instantly.ai today!
